A middle aged gentleman sits across from a woman and her young daughter, explaining how to “get in on the ground level of a new revolution for just a small investment of a few thousand dollars.”

My ears perk up. “This must be some revolution if you have to pay to join!” I think to myself.

I keep listening. He describes the system: “We’ll give you some material to use. Then, you just set up a few websites—do some stuff on Facebook/Twitter—and you’ll start making automatic income. Probably $10k/month or so, just to start.”

By now, I’m sure this guy is full of it, but I’m giving him the benefit of the doubt because $10k/month doing a little legitimate affiliate marketing, actually, is not unheard of.

But then he says something that pushes me over the “BS line.” The “revolution” this guy is selling is a system to teach people to make money by investing in gold. That’s shady enough, but he then goes on to explain how you don’t actually make money by selling the system (that totally works and is totally legit and go tell all your friends, by the way), but by signing up other people and teaching them how to sign up other people.

There’s no end of the chain where anyone actually buys a smarmy investing product. Instead, you make money by getting others to sign up, and getting them to sign others up after them.

Boom. Pyramid scheme.

This is when I decide I’ve had enough and, as the woman leaves the coffee shop, I flag her down, explain to her I think she’s being sold a scam, and urge her to read up on pyramid schemes.

Here’s what you may find really surprising. This woman does not look like a schmuck waiting to be taken advantage of. She’s dressed well, seems to be educated, and her daughter is shy but polite and well-spoken.

What on Earth is drawing them into this trap that is, so clearly to me and a few others nervously looking on, a scam?

Smart people aren’t supposed to fall for this stuff. Educated people can smell a scam from a mile away. Right?

Maybe not.

After this little run in, I decided to do some research on fraud and how people become victims. There’s a world of fascinating studies—much of it available to peruse at The Fraud Research Center—but a few things stood out to me.

If you think of yourself as smart, educated, and immune to con artists, you may want to pay attention.

Here’s what’s going to keep you safe.

Smart, Educated, And Vulnerable To Fraud…

There’s a sea of unusual and perfectly legitimate investments in the world. But wrapped up in it is a seedy underbelly of fraud, scams, and cons that prey on illusions and misplaced trust.

Venture into this world with the right mindset, and you may find yourself participating in a risky, but perfectly legitimate investment or business. Wander blindly and you could lose everything before you know what hit you.

If you’re a well-educated, confident man, for instance, you’re at higher risk of being taken by a scam for a several reasons. Men tend to be less risk averse than women. And, education leads them to a sense of misplaced confidence. They think they’re too smart to be taken by a con.

The problem is the same education that gives you confidence actually masks the fact you may be completely uneducated when it comes to fending off scams. And this is what makes you a prime target; your confidence can be used against you.

A fascinating study conducted by the AARP also found several characteristics that can drastically increase the likelihood you’ll unknowingly be scammed. Take note if any of these top characteristics apply to you:

You’re generally impulsive, and prefer to make decisions without careful thought.

And both studies, along with others, confirmed that your education level doesn’t help if you fit into one of the high risk categories. If you’re hard up for cash, you’re a con’s dream target. It doesn’t matter how smart you are or how many years you spent in school.

Spotting A Scam A Mile Away

You don’t have to live a high risk lifestyle to find yourself surrounded by scams. Dozens of them come your way every day via the SPAM folder of your email inbox. And you’ve certainly run into a scammy website promising to make you rich with “just a few clicks” while searching for something else online.

But these types of scams aren’t very dangerous. You know they’re garbage, and you’ve conditioned yourself to ignore them. What’s more dangerous are the scams that come with some form of social pressure. Someone you know is encouraging you to check out a fishy offer. Maybe a friend or family member has gotten tangled in a scammer’s web—or is about to like the woman I talked to at the coffee shop.

After spending years in, around, and researching the world of affiliate sales, I’ve found a few ways to tell with almost certainty whether or not an opportunity that comes to you is legitimate.

Here’s a list of questions I ask myself before considering any new investment opportunity. Each one is a red flag, and should be taken seriously:

1. Is a real product or service involved?

At the end of the day, does anyone actually get anything? It’s amazing how simple this question is, but how difficult it can be to answer when you’re in the middle of it and you want to believe you’ve found something great.

For instance, I think Avon is stupid, but the people who sell for them to make a living aren’t being scammed.They sell real products and, supposedly, some people somewhere actually like them. But the woman I met at the coffee shop was most certainly being scammed because there was no real product or service. She was being asked to pay money for nothing to get others to pay money for nothing, so on and so forth.

This is the biggest red flag. If there’s no real product or service being sold, run away!

2. Does it promise a miracle with no research to back up the claims?

A real product can still be a scam if it promises to do something incredible without any proof that it actually works. A popular one these days is the acai berry diet/cleanse/miracle/whatever. There’s nothing wrong with selling acai berry juice. But there’s something terribly wrong with selling it and telling your customers it will heal your cancer, make you lose 50 lbs., and turn you into an olympic gymnast. Oh, and don’t worry about scientific studies. You have to believe it for it to work.

I’m sure we’ll some day find a cure for cancer and a magic weight loss plan, but it will not be sold out of the trunk of your co-worker’s old Cadillac.

3. Are you required or encouraged to sell to friends and family?

This does not, by itself, make a business opportunity a scam, but it’s a huge red flag. The reason is that legitimate products and services do not need your friends and family to buy them to survive. If it’s good, normal people who do not know you will buy it. That’s how real commerce works.

Scams often require exploiting the vulnerability of those who trust you. If the only person you can get to listen for more than 10 seconds about your crazy new diet pill is your aunt who secretly wants to slap you every time you bring it up, you might be pursuing the wrong “opportunity.”

4. Are the risk and reward balanced?

Every essay I write has a pretty specific aim: to teach you how to remove some of the risk of doing things traditionally considered risky. But one thing I never do is promise an unbelievable gain without also explaining the cost of it. If you find an investment, business, or any opportunity that promises jaw-dropping returns with zero risk to you, be skeptical.

Life is built on balancing risk and reward. It’s practically a law of physics: great rewards are reserved for those willing to either stomach great risk or work very hard to reduce them. Anything that promises to return one without the other is almost definitely a scam.

Go Forth And Prosper, But Don’t Be A Schmuck

Being a smart risk-taker is all about looking for unusual opportunities to make your life better. There are a lot of benefits that come with leading a life where you explore possibilities instead of turning down opportunities. But that same, admirable search for possibility can steer you wrong—and right into the throes of a scam—if you’re not also smart about how you choose which opportunities to pursue.

The next time you’re presented with an offer that seems like it might be too good to be true, don’t walk away immediately. Instead, ask yourself these questions:

Am I in a place where I can objectively evaluate what’s in front of me, or am I vulnerable to manipulation right now?

Is there a real product or service being sold, or is this a giant ponzi scheme of smoke and mirrors?

Am I being promised something incredible with no evidence to back it up?

Do I have to rope my friends and family into this to be successful?

Is the risk balanced with the reward I’m being promised or is this one of those “pie in the sky” investments?